Correlation Between GMO Internet and Alphabet

Can any of the company-specific risk be diversified away by investing in both GMO Internet and Alphabet at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining GMO Internet and Alphabet into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GMO Internet and Alphabet Class A, you can compare the effects of market volatilities on GMO Internet and Alphabet and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in GMO Internet with a short position of Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMO Internet and Alphabet.

Diversification Opportunities for GMO Internet and Alphabet

0.73

Correlation Coefficient

GMO Internet  Alphabet

Poor diversification

The 3 months correlation between GMO and Alphabet is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding GMO Internet and Alphabet Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class A and GMO Internet is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on GMO Internet are associated (or correlated) with Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class A has no effect on the direction of GMO Internet i.e., GMO Internet and Alphabet go up and down completely randomly.

Pair Corralation between GMO Internet and Alphabet

Assuming the 90 days horizon GMO Internet is expected to under-perform the Alphabet. But the stock apears to be less risky and, when comparing its historical volatility, GMO Internet is 1.27 times less risky than Alphabet. The stock trades about -0.19 of its potential returns per unit of risk. The Alphabet Class A is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  17,306  in Alphabet Class A on October 11, 2024 and sell it today you would earn a total of  1,634  from holding Alphabet Class A or generate 9.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

GMO Internet  vs.  Alphabet Class A

GMO Internet

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, GMO Internet is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Alphabet Class A

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Class A are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Alphabet exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GMO Internet and Alphabet

The main advantage of trading using opposite GMO Internet and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMO Internet position performs unexpectedly, Alphabet can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Alphabet will offset losses from the drop in Alphabet's long position.

The idea behind GMO Internet and Alphabet Class A pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.